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Colorado Insurance Blog

How to Avoid Contractor Fraud

When there’s a catastrophe, like a fire or hail storm, the likelihood of contractor fraud increases immensely. Here are some tips for picking a reputable contractor and avoiding fraud.

1. Only work with contractors that are licensed

Colorado doesn’t require contractors to be licensed on the state level, so don’t assume that every contractor you encounter has a license. Many counties and cities have specific requirements, but not all local governments require contractors to be licensed.

Licensed contractors are required to have a certain amount of experience and pass an exam. That helps ensure they are qualified in their field.

You can verify the license of a professional you’re considering here: Verify a Colorado Professional or Business License

2. Find a contractor that is insured

If your contractor isn’t insured, you could be responsible for any injuries that occur while they’re working on your property. Request a Certificate of Insurance from any contractors you’re considering to verify their coverage.

3. Work with local contractors when you can

Local contractors have a better idea of the rules and regulations in your area. Not only does that help ensure work is done to code, but it also speeds up the process. If you hire a contractor from another state, there’s a chance you could be waiting longer for them to get permits pulled and inspections done.

A contractor that is local is also less likely to take payment and leave town without completing the work. If you have any issues with the work done, you can often get a local contractor to come back and fix it whereas someone from out of town might leave you high and dry.

4. Check references and reviews

If multiple people have complaints about their experience with a specific contractor, there’s a good chance you’ll also have issues with them. But if you find glowing reviews online and get good references for them, you’ll likely have a better experience.

5. Don’t get pressured into making a hasty decision

You don’t have to sign a contract immediately. Take your time, gets bids from multiple contractors, and make sure you understand the contract before you sign it. If you’re being pressured to sign something on the spot, that might not be a contractor you want to work with.

6. Get everything in writing

According to Travelers, the contract should include:

  • A detailed description of the work to be completed and the price of each item.
  • A payment schedule – for example: one-half down and one-third when work is partially completed, and the balance due upon completion of repairs.
  • The estimated start date and completion date on larger projects.
  • Any applicable guarantees, which should be written into the contract and clearly state what is guaranteed, who is responsible for the guarantee, and how long the guarantee is valid.
  • Signatures from both parties. You should never sign a contract containing blank sections.

7. Don’t pay in full for incomplete work up-front

Paying up-front increases the risk of a fraudulent contractor taking your money without completing the work. It also opens the door to poor workmanship and cutting corners because they don’t have to meet certain expectations in order to get paid.

When paying a contractor, pay by check rather than cash. Make the check out to the company rather than an individual.

8. Keep all records together in a safe place

Any paperwork you receive regarding the job should be kept together. Then if you need to reference anything you can find it. It also helps your case if there are any disputes.

This can include anything from the contract, any changes to the contract, estimates, invoices, certificates of insurance, correspondence, etc.

9. If you’re filing a home claim, file it and talk to your adjuster before starting on any work

If you’re repairing your home because of a loss that might be covered by insurance, make sure you file a claim before starting any work.

The insurance company needs to verify coverage before they can approve a claim. If you begin the repairs before an adjuster reviews the damage, your claim could be declined.

10. Report any suspected fraud

You can call local law enforcement, the National Insurance Crime Bureau 1-800-TEL-NICB, or FEMA disaster fraud hotline 1-866-720-5721 to report any suspected fraud.

Sources:

Hiring a contractor checklist and tips. Travelers Insurance. (n.d.). Retrieved April 28, 2022, from https://www.travelers.com/resources/home/renovation/checklist-for-hiring-the-right-contractor

Colorado general contractor license and Insurance Requirements. Next Insurance. (2021, December 15). Retrieved April 28, 2022, from https://www.nextinsurance.com/blog/colorado-general-contractor-license-and-insurance-requirements/

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